Problem Loan Management
Banking and Financial Services
Finance
Lesson Plan
Performance Objective
Students will understand and discuss the nature of problem loan management.
Specific Objectives
 Understand the legal process of bankruptcy
 Understand how bankruptcy affects lenders and borrowers
 Describe available options to filing bankruptcy
Terms
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Loan– money that is temporarily borrowed with a promise of repayment in addition to interest.
Interest– money that is paid for the use of money.
Borrower– one who applies for a loan.
Default– when terms of a loan are not met by the borrower.
Bankruptcy– a court proceeding designed to reduce or eliminate debt of a borrower.
Collection– when a loan is transferred to either another department within the lending institution or to
an outside source who will attempt to collect as much of the loan funds as possible.
Foreclosure– legal proceeding that removes the property rights of an owner.
Liquidation– assets that can be sold and cash used to repay debt.
Short sale– can preclude a foreclosure by selling property for less than what is owed, but reduces costs
of a potential foreclosure.
Real‐estate owned– when a bank cannot sell a property at a foreclosure sale and has to try to
sell it itself.
Garnishment– portion of a borrower’s salary is automatically withdrawn to help repay debts.
Refinancing – when a new loan with a lower interest rate and possibly different loan terms is made to
replace a loan already in existence.
Time
When taught as written, this lesson should take approximately three to four days to teach.
Preparation
TEKS Correlations
This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities may result
in the elimination of any or all of the TEKS listed.
Copyright © Texas Education Agency, 2014. All rights reserved.
1
130.163 (c) Knowledge and Skills
(5) The student monitors, plans, and controls the day‐to‐day activities within a banking organization in
order to ensure secure operations. The student is expected to:
(F) discuss the nature of problem loan management.
(6) The student describes laws and regulations used to manage business operations and transactions
in the banking services industry. The student is expected to:
(H) describe provisions of bankruptcy law.
Interdisciplinary Correlations
English‐English I
 110.31 (b)
(1) Reading/Vocabulary Development. Students understand new vocabulary and use it when reading
and writing.
 110.3 (b)
(11) Reading/Comprehension of informational text/procedural texts. Students understand how to
glean and use information in procedural texts and documents.
Math‐Algebra I
 111.32 (b) (1)
(C) Interpret and make decisions, predictions, and critical judgments from functional relationships.
Occupational Correlation (O*Net – www.onetonline.org/)
Job Title: Credit Counselor
O*Net Number: 13‐2071.00
Reported Job Titles: Certified Consumer Credit and Housing Counselor, Certified Credit Counselor, Certified
Personal Finance Counselor
Tasks



Assess clients' overall financial situation by reviewing income, assets, debts, expenses, credit reports,
or other financial information.
Create debt management plans, spending plans, or budgets to assist clients to meet financial goals.
Recommend strategies for clients to meet their financial goals, such as borrowing money through loans
or loan programs, declaring bankruptcy, making budget adjustments, or enrolling in debt management
plans.
Soft Skills
Active Listening, Judgment and Decision Making, Complex Problem Solving
Accommodations for Learning Differences
It is important that lessons accommodate the needs of every learner. These lessons may be modified to
accommodate your students with learning differences by referring to the files found on the Special
Populations page of this website.
Copyright © Texas Education Agency, 2014. All rights reserved.
2
Preparation
 Review and familiarize yourself with the terminology and website links.
 Have materials and websites ready prior to the start of the lesson.
References
 http://www.occ.gov/topics/consumer‐protection/foreclosure‐prevention/index‐foreclosure‐
prevention.html
 http://www.consumerfinance.gov/askcfpb/1451/what‐credit‐counseling.html
 www.dol.gov/whd/regs/statutes/garn01.pdf
Banking & Financial Systems. (2013). N.p.: Goodheart‐Willcox Publisher.

Instructional Aids
 Textbook
 Lesson Presentation
 Instructor Computer/Projection Unit
 Websites
Introduction
The main purposes of this lesson are to help students understand
 that there are many options if a borrower is having difficulty making loan payments;
 the advantages and disadvantages of credit counseling; and
 the processes to have delinquent loans repaid.
Ask students what they know about bankruptcy.
Ask students if they know what foreclosure means.
Copyright © Texas Education Agency, 2014. All rights reserved.
3
Outline
I. What is a “problem” loan?
A. Loan in default– when a borrower
does not meet the loan obligation
B. Regularly making late payments
C. Not making payments at all
II.
Options for problem loans
A. Collection
B. Garnishment
C. Repossession
D. Loan Modification
E. Foreclosure
F. Bankruptcy
III.
Collection
A. When payments are not made on
a loan and efforts must be made
to collect the debt owed
B. A loan can be transferred to
another department within the
lending institution or to an
outside source who will attempt
to collect as much of the loan
funds as possible
IV.
Garnishment
A. Portion of a borrower’s salary is
automatically withdrawn to help
repay debts
B. Requires a court order
C. According to Title III of the
Consumer Credit Protection Act,
garnishment may not exceed:
Occasionally borrowers make a
payment late but then get back on
track and make payments as they
should. Explain to students that
loans can become problem loans
when the payments are
consistently made late or skipped
altogether. That is when action
should be taken.
Discuss each of these options with
the students. Ask them which
option(s) they think is the most
fair. Would they give the
borrowers more consideration
before they took any action?
Multiple Intelligences Guide
Existentialist
Interpersonal
Intrapersonal
Kinesthetic/
Bodily
Logical/
Mathematical
Musical/Rhythmic
Naturalist
Verbal/Linguistic
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4
Visual/Spatial
1. 25% of the week’s
disposable income or
2. “the amount by which his
disposable earnings for that
week exceed the Federal
minimum hourly wage . . .
whichever is less’”
D. Stops if the borrower files
bankruptcy
V.
VI.
As the topics on the
presentation are being
discussed, ask students to
research the topics on the
Internet. They can look at
statistics, or simply search by
typing in the topic name to see if
they can locate other facts than
what are presented.
Repossession
A. When a lender takes possession
of an asset that has a loan
attached to it
B. Lender can sell asset and use
funds to repay the loan
Loan Modification
A. Possible reduction of an interest
rate on a loan
B. Possible extension of the loan
term
C. Designed to help make a loan
more affordable for a borrower
and is less costly than legal
processes, such as foreclosure
or bankruptcy
VII. Foreclosure
A. Occurs as a result of non‐
payment of a loan
B. Legal proceeding that removes
the property rights of an owner
C. Usually refers to real estate,
such
Direct students to a website that
has a mortgage calculator. Input
terms for a loan and calculate
the payment. Then change the
terms and see how the payment
changes. Discuss if they think
loan modifications are a good
idea or not.
Have students research the
procedures that are followed in
a foreclosure. Students can also
see if they can locate a video on
the Internet of an actual
foreclosure sale so they can see
how it works.
Multiple Intelligences Guide
Existentialist
Interpersonal
Intrapersonal
Kinesthetic/
Bodily
Logical/
Mathematical
Musical/Rhythmic
Naturalist
Verbal/Linguistic
Copyright © Texas Education Agency, 2014. All rights reserved.
5
Visual/Spatial
as homes, buildings, or land
D. Short sale— can preclude a
foreclosure by selling property
for less than what is owed, but
reduces costs of a potential
foreclosure
E. Real‐estate owned— when a
bank cannot sell a property at a
foreclosure sale and has to try
to sell it itself
VIII.
Bankruptcy
A. Legal proceeding designed to
reduce or eliminate a
borrower’s debt
B. Sometimes referred to as a
second financial chance by
allowing a borrower to have a
“clean slate”
C. “Stays” or stops, foreclosure
proceedings temporarily
IX.
Effects of bankruptcy
A. For the borrower
1. Remains on borrower’s
credit report for ten years
2. Allows borrower to
somewhat start over
financially
B. For the lender
1. Second chance for lender to
receive money toward
loan, depending upon the
chapter filed
Ask students to research the
time schedule of bankruptcy
hearings so they can see some of
the steps that are taken in a
bankruptcy. They can also
research companies that have
filed bankruptcy with a partner.
Multiple Intelligences Guide
Existentialist
Interpersonal
Intrapersonal
Kinesthetic/
Bodily
Logical/
Mathematical
Musical/Rhythmic
Naturalist
Verbal/Linguistic
Copyright © Texas Education Agency, 2014. All rights reserved.
6
Visual/Spatial
X.
Types of bankruptcy
A. Chapter 7
1. Liquidation, assets can be
sold and cash used to repay
debt
2. More popular for individuals
B. Chapter 11
1. Reorganization, businesses
can change their structure
2. Make agreements for
repayments of debt
C. Chapter 13
1. A form of reorganization for
individuals
2. Borrower must have an
income
XI.
Credit counseling/Debt
consolidation
A. Credit counseling
1. Budgeting workshops
2. Counselors contacting
creditors
3. May re‐negotiate credit
terms
4. May charge fees for their
services
B. Debt consolidation
1. Can be high interest rates
2. Combine all of your debt
into one loan
3. May charge fees for their
services
Divide the class in half and have
one half research credit
counseling and the other half
research debt consolidation.
Provide the halves with a flip
chart paper or poster board, and
have them write a fact that they
learned on the paper. Then a
spokesperson for each group can
talk about the facts that were
written down.
Multiple Intelligences Guide
Existentialist
Interpersonal
Intrapersonal
Kinesthetic/
Bodily
Logical/
Mathematical
Musical/Rhythmic
Naturalist
Verbal/Linguistic
Copyright © Texas Education Agency, 2014. All rights reserved.
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Visual/Spatial
Application
Guided Practice
Have students, in pairs, research what refinancing means. They should discuss if this may be an option to help
a borrower in a problem loan situation or not. Ask each pair what they discussed, and record their responses
on the board so students can fully understand what refinancing means and the advantages and disadvantages.
Independent Practice
Students will conduct Internet research on the impact of bankruptcies and foreclosures on the economy. They
will take notes on the effects, and they should also include a few statistics regarding the numbers of
foreclosures and bankruptcies, preferably in their own area.
Summary
Review
Ask students the following questions on exit tickets
Question #1:
Answer #1:
What are options for problem loans?
Collection, garnishment, repossession, loan modification, foreclosure, and bankruptcy
Question #2:
Answer #2:
What are the bankruptcy chapters that individuals can file?
Individuals can file chapter 7 or chapter 13.
Question #3:
Answer #3:
Which act sets forth the guidelines for garnishment of wages?
The Consumer Credit Protection Act, Title III
Question #4:
Answer #4:
If bankruptcy can reduce or eliminate debt, what is a disadvantage of filing?
It stays on your credit report for ten years.
Question #5:
Answer #5:
What is foreclosure?
When a bank takes back a property because of non‐payment of the mortgage. The bank will
try to sell the property to get some, or all, of its principal repaid.
Evaluation
Informal Assessment
Any and all of the following can be used as informal assessments
 Exit tickets with vocabulary
 Pair‐share activities
 Class discussion and participation
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Formal Assessment
The following can be considered a formal evaluation
 Credit PSA Assignment #1 – In a group, students will create a Public Service Announcement that
describes the consequences of not meeting your debt obligations. They should mention specific ways
of misusing credit, specific consequences, and suggestions for good credit management. The video
should not exceed ninety seconds. Each student in the group should have specific roles in this process.
 Famous Bankruptcies Assignment #2 – Students will conduct research to locate famous people in the
news who have filed bankruptcy. They will select one and write a one‐page report including the
following information: when the bankruptcy was filed, what chapter (7, 11, 13), what happened in the
bankruptcy (for example, was property sold? did creditors get the money they were owed?), and any
other information they feel is important. Proper writing conventions should be followed.
 Financial Crisis Brochure Assignment #3 – Students will research causes of the financial crisis of 2008
that were related to real estate lending and prepare an informative brochure detailing their findings.
They should include concepts such as subprime lending and bailouts of major financial institutions as
well as what has been done since then to prevent another crisis. Proper mechanics should be used as
well as graphics where appropriate.
Enrichment
Extension
Students will interview an underwriter or loan officer of a bank or mortgage company. The focus will be on
what the procedure they use to handle problem loans. Ask about any and all communication and collection
efforts with the borrower. Also ask about how successful that employee feels about the efforts to repay loans.
Document your findings in a one‐page report.
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Problem Loan Management
Credit PSA Assignment #1
Student Name: ______________________________
CATEGORY
20
15
8
1
Content
Shows a full
Shows a good
Shows a good
understanding of understanding of understanding of
the topic.
the topic.
parts of the
topic.
Does not seem
to understand
the topic very
well.
Comprehension
Student is able to
accurately
answer almost all
questions posed
by classmates
about the topic.
Student is
unable to
accurately
answer
questions posed
by classmates
about the topic.
Stays on Topic
Stays on topic all Stays on topic
Stays on topic
It was hard to
(100%) of the
most (99‐90%) of some (89%‐75%) tell what the
time.
the time.
of the time.
topic was.
Time‐Limit
Presentation is Presentation is at Presentation is at Presentation is
no more than 90 least 60 seconds least 30 seconds less than 30
seconds long.
long.
long.
seconds long.
Collaboration
with Peers
Almost always
listens to, shares
with, and
supports the
efforts of others
in the group.
Student is able to
accurately
answer most
questions posed
by classmates
about the topic.
Usually listens to,
shares with, and
supports the
efforts of others
in the group.
Student is able to
accurately
answer a few
questions posed
by classmates
about the topic.
Often listens to,
shares with, and
supports the
efforts of others
in the group, but
sometimes is not
a good team
member.
Rarely listens to,
shares with, and
supports the
efforts of others
in the group.
Often is not a
good team
member.
Maximum Points Possible: 100
Student Points: ___________
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10
Problem Loan Management
Famous Bankruptcies Assignment #2
Student Name: _____________________________
CATEGORY
20
15
8
1
Amount of
Information
All topics are
addressed and all
questions
answered.
All topics are
addressed and
most questions
answered.
Most topics are
addressed and
most questions
answered.
One or more
topics were not
addressed.
Quality of
Information
Information
clearly relates to
the main topic. It
includes several
supporting
details and/or
examples.
Information
clearly relates to
the main topic. It
provides one to
two supporting
details and/or
examples.
Information
clearly relates to
the main topic.
No details and/or
examples are
given.
Information has
little or nothing
to do with the
main topic.
Mechanics
No grammatical,
spelling, or
punctuation
errors.
Almost no
grammatical,
spelling, or
punctuation
errors
A few
grammatical,
spelling, or
punctuation
errors.
Many
grammatical,
spelling, or
punctuation
errors.
Paragraph
Construction
All paragraphs
include an
introductory
sentence,
explanations or
details, and a
concluding
sentence.
Most paragraphs
include an
introductory
sentence,
explanations or
details, and a
concluding
sentence.
Paragraphs
included related
information but
were typically
not constructed
well.
Paragraphing
structure was
not clear and
sentences were
not typically
related within
the paragraphs.
Internet Use
Successfully uses
Internet links to
find information
and navigates
within these sites
easily without
assistance.
Usually able to
use Internet links
to find
information and
navigates within
these sites easily
without
assistance.
Occasionally able
to use Internet
links to find
information and
navigates within
these sites easily
without
assistance.
Needs assistance
or supervision to
use Internet links
and/or to
navigate within
these sites.
Maximum Points Possible: 100
Student Points: ___________
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11
Problem Loan Management
Financial Crisis Brochure Assignment #3
Student Name: _____________________________
CATEGORY
20
15
8
1
Content ‐
Accuracy
All facts in the
brochure are
accurate.
99‐90% of the
facts in the
brochure are
accurate.
89‐80% of the
facts in the
brochure are
accurate.
Fewer than 80%
of the facts in
the brochure are
accurate.
Knowledge
Gained
Students can
accurately
answer all
questions
related to facts
in the brochure.
Students can
accurately
answer most
questions
related to facts
in the brochure.
Students can
accurately
answer a few
questions
related to facts
in the brochure.
Students cannot
accurately
answer any
questions related
to facts in the
brochure.
Writing ‐
Mechanics
Capitalization
and punctuation
are correct
throughout the
brochure.
Capitalization
and punctuation
are correct
throughout the
brochure after
feedback from
an adult.
There are one to
two
capitalization
and/or
punctuation
errors in the
brochure, even
after feedback
from an adult.
There are several
capitalization or
punctuation
errors in the
brochure, even
after feedback
from an adult.
Attractiveness &
Organization
The brochure
has
exceptionally
attractive
formatting and
well‐organized
information.
The brochure
has attractive
formatting and
well‐organized
information.
The brochure
has well‐
organized
information.
The brochure's
formatting and
organization of
material are
confusing to the
reader.
Graphics go well
with the text,
but there are so
many that they
distract from the
text.
Graphics go well
with the text,
but there are
too few and the
brochure seems
"text‐heavy."
Graphics do not
go with the
accompanying
text or appear to
be randomly
chosen.
Graphics/Pictures Graphics go well
with the text and
there is a good
mix of text and
graphics.
Maximum Points Possible: 100
Student Points: ___________
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12